Rhode Island Life Insurance Practice Exam

What action can an insurance company take when misrepresentation on an application is discovered?

1. Void the policy without restrictions

2. Void the policy only during the Contestable period and if material

3. Change the terms of the policy

4. Cancel the policy without refund

The correct answer is: Void the policy only during the Contestable period and if material

When misrepresentation on an insurance application is discovered, the appropriate action that an insurance company can take is to void the policy only during the Contestable period and if the misrepresentation is material. The Contestable period, typically the first two years after a policy is issued, allows insurers to investigate and contest claims based on the accuracy of the application. This period is crucial because it acknowledges that the insurance company, during this time, has the right to verify the information provided. If a material misrepresentation is found, meaning the misinformation significantly impacted the underwriting decision, the insurer can void the policy. Voidance is not applicable after this period unless the insurance company can prove fraud, demonstrating a higher standard of proof and legal thresholds. Understanding this process helps policyholders recognize the importance of complete and truthful disclosures when applying for insurance, as it affects their coverage and claims in the long run.